Overtime changes offer wage boost for Southerners

“No reasonable person seeks a complete uniformity in wages in every part of the United States; nor does any reasonable person seek an immediate and drastic change from the lowest pay to the highest pay. We are seeking, of course, only legislation to end starvation wages and intolerable hours…” ~ Franklin D. Roosevelt, State of the Union Address, 3 January 1938

A full-time, salaried job with benefits has long been held as a marker of a young person’s path to adulthood. For many, a full-time, salaried job comes with the increased security of predictable hours, predictable pay, and the first building blocks of a career—one that offers family-supporting wages. For far too many, however, the laws on the books designed to place reasonable limits on the work week and preserve the value of a salaried wage have been compromised—effectively compromising a working adult’s ability to achieve economic resilience and fulfill a meaningful social and civic life outside of work.

Last month, the Department of Labor issued a final notice of rulemaking that makes broad changes to the Fair Labor Standards Act (FLSA) to simplify existing regulations and increase the share and number of workers eligible for overtime protections. Specifically, the ruling increased an outdated salary threshold used to determine eligibility for overtime protections: the old threshold of $455 per week (last adjusted in 1975), was updated to a new threshold of $913 per week, which goes into effect December 1, 2016. Under the new rules, a salaried worker making less than the new threshold is eligible to be paid 150 percent of their base wage (time and a half) for work over the forty-hour full-time standard.

History of the FLSA

Originally passed in 1938 under the Roosevelt Administration, three of this country’s most important labor protections came out of the FLSA: tough restrictions designed to ban child labor; the minimum wage; and a set of overtime rules designed to curb the pervasiveness of work above and beyond a newly established 40-hour work week. As an accommodation to employers, however, the law provides certain “white collar” exemptions from overtime eligibility based on the salary an employee earns and the duties or job functions they perform.

Unfortunately, the original law left a number of critical terms and issues undefined, limiting its impact; for example, many industries and sectors of the economy were not covered during the first few decades. And without clear legislative language, the efforts to define job duties that met the exemption standards became increasingly difficult—especially as workplaces changed. Finally, with the significant inflation that occurred during the 20th century, the salary test became disconnected from any meaningful marker of wage strength, effectively allowing for the payment of poverty wages for a household of four (as shown on the chart below).

Impact for Workers

Previous research shows that the groups most likely to benefit from the changes are disproportionally women, workers under age 35, racial and ethnic minorities, and those with lower levels of educational attainment. The options available to employers responding to these new changes are nearly all positive, and will have the effect of increasing the overall economic security of low- and moderate-income households while providing more opportunities for a civic and social life outside of work:

Employers could offer an immediate wage boost for those full-time salaried workers making more than the old $455 threshold, but less than the $913 threshold.

Employers could reorganize labor that shifts responsibilities for work hours performed by overtime-eligible workers. Employees who remain under the threshold for the overtime exemption will now be compensated for their work above and beyond the 40-hour work-week at 150 percent of their normal wage.

Changes to the salary threshold for exempting workers from overtime projections have long been resisted—particularly by specific industries and in the South as a whole, where low wages have been a staple of the modern workforce. Even though the new salary represents only the 40th percentile for weekly wages in the South (a bit less than advocates were hoping for), many of the region’s workers will benefit both directly and indirectly from the new changes. Nearly 39 percent (or 4.8 million) of the newly covered workers under the new salary threshold reside in the South (See table below). While it is clear that the most populous states in the South will have the largest number of workers affected, it is notable that Arkansas, South Carolina, and West Virginia have the largest share of their current salaried workforce directly affected. Also notable among the list of states are Florida and Alabama, which represent a disproportionate amount of the increase in lawsuits under the FLSA since the early 1990s.

Fair employment practices are a critical element to the Infrastructure of Opportunity

The updates to the FLSA’s overtime rules will ensure that the extraordinary efforts of lower-wage workers, who are often juggling the demands of a more active family life and have traditionally been excluded from traditional workplace benefits, can no longer easily be devalued in the marketplace. Moreover, the changes to the FLSA are also likely to have a net-positive impact on health outcomes—which have long been poor in the South. In a recent meta-analysis by the CDC, 16 of 22 studies addressing general health effects found that overtime was associated with poorer perceived general health, increased injury rates, more illnesses, or increased mortality. As communities evaluate their own Infrastructure of Opportunity, businesses and community leaders should take note of how laws and systems like the old overtime scheme have disproportionally benefited largely white and well-educated workers. Without addressing the legal and structural barriers in place for low-wage workers, the South will continue to have an underpaid and undervalued citizenry.

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About MDC

MDC, a nonprofit based in Durham, N.C., began publishing State of the South reports in 1996 to further its mission of helping communities, organizations, and leaders close the gaps that separate people from opportunity. Founded in 1967 to help North Carolina make the transition from an agricultural to an industrial economy and from a segregated to an integrated workforce, MDC now focuses on increasing educational attainment, connecting people to work that pays, and helping them get the resources they need to become successful. To accomplish that, MDC publishes research that highlights the importance of removing inequities; organizes leaders community-wide to create a will for change; develops programs that strengthen the workforce and foster economic development; and incubates those programs so they can be made sustainable and replicated at scale.